PROPERTY: Cape Metro Battles To Sustain A Recovery

Recent Western Cape Business News

The Second Quarter Cape Metro FNB Residential Property Barometer pointed to a decline in activity levels in the region, after some previous improvement in the 1st quarter. While some of this may be seasonal, the fact that the activity level rating is also below that of the corresponding quarter of a year ago suggests that a recovery in the Western Cape is not yet a fait accompli.

The Property Barometer is a survey of a sample of estate agents in the major cities of the country regarding their personal experience of market conditions.

The main Barometer question relates to the level of demand activity, and agents are asked to rate the level of demand that they experience on a scale of 1 to 10.

After an initial rise in the first quarter to 4.71, agents estimated activity to have declined back to 4.21 in the second quarter. The second quarter survey was undertaken in mid-May, shortly after the Reserve Bank’s announcement of a further 1 percentage point interest rate cut at the end of April to bring prime rate down to 12%.

Western Cape survey respondents are the least optimistic with regard to activity levels

The agents surveyed from the Western Cape rated the region as having the lowest activity level of all 5 major regions, at 4.21. Seasonal factors cannot entirely be blamed, as on a year-on-year basis the 2nd quarter activity level is 15% down on the corresponding quarter of 2008.

Although the Cape Town activity rating is the weakest of the main regions, it is not way out of line with activity levels in the other regions, with the national demand recovery proving to be a very mild one. While interest rates have dropped considerably, households are struggling to reduce their debt ratio due to recessionary conditions and real disposable income decline.

Unrealistic seller expectations are still widespread

Sellers in the region are still by-and-large unrealistic, given the recessionary conditions and the huge financial pressure that the household sector finds itself under. Average time on the market rose from 18 weeks and 5 days in the first quarter to 22 weeks and 2 days in the second. The percentage of properties sold at below asking price also rose further from 80% in the 1st quarter to 91% in the 2nd.

African foreign buying increasingly significant

Foreign buying in the Western Cape, expressed as a percentage of total buying, rose mildly to 11%, above the national average of 6%. What is more significant, however, is agents reporting that African buyers at 9% are rapidly becoming a far more significant part of total foreign buying.

Reasons for Selling

On the selling side, downscaling due to financial pressure during the second quarter rose to a massive 36% of total selling, by far believed to be the single-most important reason for selling of property. This reason for selling is widespread across income bands, but is particularly severe in the low income category. This is the 3rd consecutive quarter of increase in this percentage in the metro. At 9% of total sales, the good news is that Polokwane and Eskom appear to be becoming more distant memories, and emigration selling is back into single-digits.